Microeconomics Case Study

Gas Taxes: The US's Dilemma

OR

Abstract:
The case study, set in the year 2005 for the US oil scenario, is meant to analyse and assess the impact of a tax on price and quantity and the final incidence of the tax between the consumer and the producer. In 2004, as the political instability in Iraq and the Middle East conflicts resulted in the skyrocketing of oil prices in the international oil market, the US found billions of dollars sucked out of its economy due to its overdependence on foreign oil market. The US was importing 11 million barrels of fuel every day, which constitutes 55% of its total consumption. For a long time, the economists had been advocating higher gas taxes, as it would encourage Americans to explore reduction in fuel consumption and shift to fuel efficient cars. But politicians feared that any move to increase taxes would spell political suicide. What exactly was, and would be the outcome is discussed and debated through the course of the case.

Pedagogical Objectives:

• To understand the impact of taxation on price and quantity
• To understand the incidence of taxation

Keywords : Impact and Incidence of Taxation, Tax Burden, Sharing of Tax Incidence, Impact of Tax on Quantity Demanded and Price of a Good, Application of Supply and Demand, Gas Taxes, Fuel Efficiency, Indirect Taxes, Canons of Taxation, Public Policy, Fiscal Policy, Managerial Economics, Microeconomics, Economics for Business, Business Economics, Economics for Managers, Paul Samuelson